CPI was 8.7% in May, while core CPI was 7.1%.
While money managers said the downward trend of inflation was positive, they warned that numbers were still above the BOE’s monetary policy committee target of 2% inflation — and therefore said the rate-hiking cycle will likely continue.
“The data are still consistent with further tightening by the Bank of England,” said Gurpreet Gill, macro strategist-global fixed income at Goldman Sachs Asset Management, in an emailed comment. “However, we think the market’s view of the terminal rate, around 6.25% yesterday, may moderate towards our expectation of 5.5%.”
The BOE will see the slowing pace of inflation “as evidence that their hawkish rate-hiking policy is finally having an effect,” said Charles Hepworth, investment director at GAM Investments, in an emailed comment. “However, it is important not to get too carried away — inflation is still uncomfortably way above the central bank’s target. Hiking from here will continue, perhaps at less speed, but it will continue.”
As such, the likelihood of another 50-basis-point increase by the BOE at its next meeting in August is reduced, said Benjamin Jones, director of macro research at Invesco, in an emailed comment. “Some pressure has been taken off gilts today but a steady fall in yields is too much to ask for just yet. For me to change my view and be more positive on gilts and see a shift in the BOE stance, is if labour market data turns significantly lower. There are some cracks forming with the unemployment rate moving higher, but they are not quite enough yet to cause the BOE to shift tack,” Mr. Jones said.
Also Wednesday, eurozone inflation was revealed to have remained above forecasts in June, with both headline and core inflation rising 5.5% over the year.
“The core inflation print is bucking the trend seen in the headline rate, given energy prices have decelerated hugely,” GAM’s Mr. Hepworth said in a separate comment. “Core inflation increased from the 5.3% reading seen the month before. A high core measure will keep pressure on the European Central Bank to maintain hawkish standards.”
